Progress report of the independent Review of British offhore financial centres
Michael Foot
April 2009
Progress report of the independent Review of British offshore financial centres 3 Foreword
Text of a letter from Michael Foot to the Chancellor of the Exchequer.
You asked me to conduct a review of the long-term opportunities and challenges facing the
British Crown Dependencies and Overseas Territories as financial centres.
The Review to date has taken place against the backdrop of discussion in the G20 of measures
to strengthen financial supervision and regulation and to encourage implementation of
international standards for the exchange of tax information. I will take full account of the action
initiated by the G20 on 2 April 2009 as my Review progresses.
There are significant differences in the size of the financial centres covered by my Review, the
nature of the business being conducted, and the reasons why the centres have developed in a
certain way. There are, however, a number of themes – set out in this progress report – which
apply to each of them.
Many of the themes revolve around the inter-dependence between the UK and the financial
centres which is manifest, for example, in the substantial flows of business from the UK to many
of them and vice versa. Defining and understanding the implications of these mutual
dependencies and any related contingent liabilities will be a key theme of my Review.
The most immediate issue facing the financial centres is how they can best deal with the current
downturn in financial services business, particularly if it becomes prolonged. In some cases, the
financial services industry is the largest employer and generator of GDP in the jurisdiction. In
every case, the financial services industry represents a significant proportion of GDP and, in most
cases, employment.
Even in a downturn, new opportunities may arise to offset retraction in certain areas of financial
services business. Managing toxic assets from the banking sector may be an example of one
such area. In other areas of business such as property and casualty insurance, underlying
profitability remains strong. But, because of global events, the business environment for the
foreseeable future is likely to be more difficult than the financial centres have been used to.
The regulatory regimes in the financial centres have received broadly favourable reviews from the
International Monetary Fund and there is a willingness to match developing international
standards. But concerted action to implement new standards will put pressure on regulatory
resources. My Review will explore whether more could be done to share technical expertise with
the financial centres and to support their efforts in other ways to meet high standards.
I am grateful for the co-operation I have so far received from governments, regulators and
industry during a continuing programme of visits to the Crown Dependencies and Overseas
Territories. I wish to reflect on the information gathered and receive input from a wider range of
interested parties before reaching conclusions.
I am also grateful for the co-operation I have received from HM Treasury, the Foreign and
Commonwealth Office and the Ministry of Justice in the UK.
I expect to deliver a final report in the fourth quarter of 2009.
Progress report of the independent Review of British offshore financial centres 5
1 Overview
A challenging economic environment
1.1 This Review is taking place against a backdrop of a synchronised global recession and
turmoil in the financial sector. How to respond to these events has been the focus of discussion
in the G20, and many governments around the world have taken steps to stimulate their
domestic economies and provide support to the financial sector.
1.2 The United Kingdom’s Crown Dependencies and Overseas Territories covered by the Review
(referred to collectively as the financial centres throughout this document) are not immune from
these events. Budget statements made in a number of the centres recently have acknowledged
the challenge of coping with a period of retrenchment by the financial sector, a point which has
also been acknowledged during initial visits by the Review team.
1.3 The challenge will be particularly acute in the event of a significant and protracted downturn
in business in the financial sector. The success of the financial centres in attracting business
means they are heavily reliant for revenue and employment on the financial sector. In relative
terms, that reliance is much higher than in the UK, in some cases over five times higher. Added
to that, the policy tools the financial centres have at their disposal to deal with economic
volatility are generally more limited than those available to a sovereign state.
1.4 However, it would be wrong to assume that no opportunities will flow from recent events,
particularly as the global economy begins to recover. The financial centres are well used to
operating in a competitive market place and to adjusting to changes in the economic and
regulatory landscape.
1.5 Important questions for this Review are the ability of each financial centre to weather the
downturn and to remain competitive in the future, and the implications both for the centre
and for the UK if they cannot or if there were significant failures of individual firms located in
these jurisdictions.
Responding to regulatory challenges
1.6 A number of factors come into play when considering these questions. First, financial
regulators everywhere face the prospect of substantial additional demands on their resources to
implement wide-ranging changes to international regulatory standards. Meeting regulatory
standards is not only important for the integrity of the financial system, but also for attracting
financial services business from centres which are unable to do so.
1.7 Second, the financial centres will need to review their current legal structures to ensure that
they have the legal framework and institutional infrastructure in place to deal with major shocks.
Some of the financial centres already have depositor, policyholder and investor compensation
schemes in place to provide a ‘safety net’. Those that do not will need to consider the extent to
which such safety nets are considered vital for the business proposition. All will need to consider
the funding implications of a major call on a compensation scheme and the range of tools
available to deal with the local consequences of the failure of a major firm in their jurisdiction.
6 Progress report of the independent Review of British offshore financial centres
Taxation
1.8 Recent developments, particularly in the run up to the G20 London Summit, have moved tax
issues up the political agenda. The renewed focus on tax transparency and tax avoidance will
have implications for the financial centres covered by the Review.
1.9 All of the financial centres have committed to the internationally agreed standard on the
exchange of tax information developed by the OECD. However, the progress report published by
the OECD on 2 April 2009 following the G20 Summit shows that a number of the financial
centres have more to do to implement the international standard.
1.10 More broadly, the growing focus on tax avoidance and the emergence of national
initiatives such as the US Stop Tax Haven Abuse Bill will continue to shape international opinion
in the short to medium term. Each centre will need to take this into account in balancing the
real or perceived competitive advantages of current tax regimes with the need to generate
sufficient revenue to support its domestic economy.
Taking forward the Review
1.11 The Review starts from the Terms of Reference (which can be found in Annex A) which
make clear that the constitutional position of the financial centres is not within scope.
1.12 The Review will not replicate the detailed assessment of regulation in each of the centres
undertaken by the International Monetary Fund (IMF) and the Financial Action Task Force (FATF).
Those assessments will, however, provide an important source of material for the Review.
1.13 The assessments to be made by the IMF and the Financial Stability Board (FSB) of
jurisdictions’ adherence to international prudential regulatory and supervisory standards called
for by the G20 will also be relevant to the extent that they become available before the Review
is complete.
1.14 The Review does intend to analyse the conflicting pressures which the financial centres
face as they navigate the fallout from, and the international response to, recent financial and
economic events.
1.15 In particular, the Review will consider:
• the degree of interdependence between the financial centres and the UK;
• the impact on the financial centres and on the UK if the prospects of some or all of
them are adversely affected; and
• whether the way in which the UK and the regulatory authorities in each financial
centre currently interrelate might be changed to the benefit of both parties.
1.16 The Review hopes to provide insights into:
• the quantum and nature of business flows between the financial centres and
the UK;
• what factors, other than tax, impact upon the choice of financial firms to use the
financial centres within the scope of this Review; and
• the track record of the financial centres in meeting international minimum
standards in areas such as financial regulation, anti-money laundering, the
sharing of financial and tax information, and what practical steps might have a
high future priority.
Progress report of the independent Review of British offshore financial centres 7
Consultation
1.17 The Review will continue to work closely with the nine financial centres within scope
and will also welcome the views of interested parties on the consultation questions set
out in Chapter 2 of this document. Comments should be sent by 5 June 2009 to
ofcreview@hm-treasury.gov.uk or by post to:
OFC Review Team
HM Treasury
1 Horse Guards Road
London
SW1A 2HQ
Further details about the consultation process can be found at
www.hm-treasury.gov.uk/ofcreview.
Progress report of the independent Review of British offshore financial centres 9
2 Focus of the Review
2.1 Each of the financial centres covered by the Review has distinct characteristics and different
areas of comparative strength. They are of varying size and significance in the global financial
system and their constitutional relationship with the UK varies. Whilst these differences must be
understood and acknowledged, consideration of the opportunities and challenges faced by the
financial centres highlights common themes. The themes for the Review are explained in this
chapter, which also poses a number of questions on which views are sought.
Mutual dependence
2.2 There is no agreed definition of what constitutes an offshore financial centre, but most
definitions tend to focus on centres which provide financial services primarily to non-residents.
There is also no agreement on who may gain or lose from the existence of offshore centres.
2.3 What is clear is that, at least for the larger centres covered by this Review, business flows
both ways between them and the UK. Some also see significant business flows to and from
other jurisdictions, particularly the United States. Defining these business flows will provide
evidence to analyse the impact on the City of London should the viability of any of this business
in future be called into question.
2.4 The close relationship the centres have with the UK also gives the UK Government a direct
interest in understanding each centre’s ability to remain viable, both economically and in
terms of complying with international regulatory standards, during the current global
economic downturn.
2.5 Understanding the nature and degree of these mutual dependencies will provide an
overarching theme for the Review.
Opportunities and risks
2.6 The Review is working with the financial centres to analyse their assessment of the risks
flowing from the current and forecast macro-economic environment. The aim will be to
improve understanding of:
• economic risks, particularly given the significant contribution the financial sector
makes to local government revenue and employment;
• financial sector regulatory risks; and
• reputational risks.
2.7 The Review will also analyse the extent to which this stress testing identifies risks for the UK,
and the nature of those risks.
2.8 The Review will also work with the financial centres to understand opportunities for the
financial sector and what steps might be taken in the financial centres, by the UK or
internationally, in order to realise these opportunities.
10 Progress report of the independent Review of British offshore financial centres
2.9 An understanding of the balance of the risks and opportunities, and where those risks and
opportunities lie, will provide a basis for an informed consideration of the specific themes set
out in the Terms of Reference for the Review.
2.10 In particular, the Review is discussing the following questions with the financial centres:
• without action on their part, what are the prospects for local revenue and
employment? To which parts of the current disruption in the financial sector are the
financial centres most vulnerable?;
• what measures could the financial centres take to reduce financial, regulatory and
reputational risk? What opportunities are likely to arise from the current problems
as global markets recover?; and
• how well placed is each financial centre to deal with any likely knock-on effects
on revenue and employment, particularly if the recovery in global financial markets
is slow?
Consultation
The Review would welcome comments from interested parties on the following questions:
• what is the short to medium term outlook for the financial centres covered by
this Review?; and
• what are the implications of this outlook and how could downside risks be
minimised?
Financial supervision and transparency
2.11 The financial centres are subject to an assessment process by the IMF which was launched
in 2001 following a report by a working group of the Financial Stability Forum (now reestablished
as the Financial Stability Board) into jurisdictions it considered to be offshore
financial centres. The programme assessed the centres against the international standards set by
the Basel Committee on Banking Supervision, the International Organisation of Securities
Commissions and the International Association of Insurance Supervisors; and the anti-money
laundering standards published by the FATF.
2.12 The initial phase of the assessment programme, which was completed in 2005, concluded
that the offshore financial centres’ compliance levels with the four main international standards
against which they were assessed were broadly comparable to those of other jurisdictions, and
in some cases were better. The IMF noted that compliance levels were generally stronger in the
banking sector than in the securities and insurance sectors.
2.13 The results of the second phase assessments of Gibraltar and Bermuda were published in
2007 and 2008 respectively and second stage assessments of a number of the other financial
centres covered by the Review are underway. The G20 agreed on 2 April 2009 that the IMF and
FSB in cooperation with international standard-setters would provide an assessment of
adherence to international prudential regulatory and supervisory standards.
2.14 Whilst the IMF and FATF evaluations have shown a positive trend in compliance with
international standards, the financial centres recognise that there is no room for complacency.
Indeed, each sees maintaining regulatory standards as an important aspect of a competitive
business model.
2.15 However, international standards do not stand still. The G20 is implementing a series of
measures to strengthen financial supervision, including a renewed focus on the ability and
Progress report of the independent Review of British offshore financial centres 11
willingness of jurisdictions to provide the information and level of co-operation needed if crossborder financial crime is to be combated effectively.
2.16 Taken together, this adds up to a considerable resource challenge for smaller jurisdictions
such as the financial centres covered by this Review.
2.17 The Review is:
• discussing with the financial centres whether more should be done to strengthen
regulatory co-operation and the sharing of technical expertise, particularly between
themselves and the Financial Services Authority (FSA) in the UK;
• exploring whether the financial centres themselves could work more closely together,
to share experience and information and/or in preparing to implement further major
changes in international regulation; and
• considering whether more should be done to facilitate the exchange of information
with law enforcement bodies in other countries.
2.18 There is an additional and separate issue that has been raised with us in respect of the sale
of retail financial products into the UK from Crown Dependencies. We shall need to review how
such products are regulated in the financial centres, in comparison with similar products
provided by a UK regulated firm to a UK retail consumer.
Consultation
The Review would welcome comments from interested parties on the following questions:
• given the close links between the UK and these jurisdictions, should more be done
to strengthen regulatory co-operation between the UK FSA and the local
regulators?; and
• in respect of retail products sold into the UK from some of the financial centres, is
there a level playing field between UK suppliers and those operating from the
financial centres and, if not, is change necessary?
Crisis management and resolution arrangements
2.19 Many countries have found that their legal framework and institutional infrastructure has
not been fully adequate to deal with major shocks, such as the collapse of Lehman Brothers or
the failure of the main Icelandic banks. Many (including the UK) have responded by proposing
or enacting changes to legislation or by looking to improve the institutional infrastructure to
enhance the ability of the authorities to deal with crises in the banking system in particular.
2.20 The Review is discussing with the financial centres what tools they have in place to deal
with the local consequences of the failure of a major firm in their jurisdiction and, to the extent
that there are gaps, what steps are being taken to address these, whether in terms of additional
intervention and resolution powers or funding to provide emergency financial support. Bermuda
has, for example, increased its debt ceiling beyond its immediate needs to give the option of a
strategic response to any problems in the financial sector that pose a systemic threat or risks to
Bermuda’s economy.
2.21 Gibraltar provides compensation schemes for depositors and investors consistent with the
requirements of European Directives. The Isle of Man has had a bank deposit protection scheme
in place for some time and Guernsey has recently moved to introduce one. The other financial
centres covered by this Review do not currently have ‘safety nets’ in place, but some are actively
considering whether to introduce them. Should they do so, the most likely focus would be on
deposit protection.
12 Progress report of the independent Review of British offshore financial centres
2.22 Any financial centre considering setting up a deposit protection scheme carefully needs to
consider the coverage of the scheme and the mechanism for funding it. The ability to fund a
scheme in the event of a significant failure in their jurisdiction is a relevant question for all of the
financial centres and, by extension given their relationship with the UK, to this country as well.
2.23 The Review notes that the Treasury Select Committee concluded in their Report Banking
Crisis: the impact of the failure of the Icelandic Banks (HC402, 4 April 2009) that “… the
overarching principle should be that the UK Government cannot provide cover for deposits held
by British citizens in jurisdictions outside the direct control of the United Kingdom”.
Consultation
The Review would welcome comments from interested parties on the following questions:
• is the extent of the ‘safety net’ in place for retail consumers a material factor in
the attractiveness of a financial centre as a location for financial services firms and
consumers of financial services?;
• are current resolution and intervention powers sufficient to maintain the
confidence of providers of financial services in the financial centres covered by this
Review and that of institutional and retail consumers of these services?; and
• what action might be taken by the UK or internationally to assist in closing
any gaps?
Taxation
2.24 Recent economic and financial events have encouraged a renewed focus on the issues of
tax evasion, tax transparency and tax avoidance. This change in political climate will have
implications for the financial centres covered by this Review.
2.25 The G20 London Summit has already offered greater clarity around the issues of tax
evasion and tax transparency. On 2 April 2009 the OECD published a list of jurisdictions assessed
by the Global Forum against the international standard for exchange of information (reproduced
in Annex C).
2.26 The Crown Dependencies were judged to have substantially implemented the agreed
standard. The Overseas Territories covered by this Review were judged to have committed to the
internationally agreed standard, but not yet substantially implemented it. Of these, some have
made significant progress towards the standard whilst others have yet to enter into any
agreements to exchange information on tax matters. In the run up to the G20 Summit, several
of the financial centres reaffirmed their commitment to this process.
2.27 The Review is discussing the following questions with the financial centres:
• what steps are they taking to further the exchange of tax information?;
• when do those centres that have not yet implemented the international standard
expect to be able to do so?; and
• what are the impediments to rapid implementation of the standard and what
practical steps could be taken to mitigate these?
2.28 While there is less clarity around the likely outcomes on tax avoidance, there is undoubtedly
strong political pressure in favour of international action to address harmful tax practices. As the
debate in the G20, the OECD and elsewhere develops, it will be important for the financial
centres covered by this Review to be able to respond positively to the emerging consensus.
Progress report of the independent Review of British offshore financial centres 13
2.29 The Review will also discuss with the financial centres whether pressure on their respective
public finances as a result of the global economic downturn might encourage diversification of
existing taxation systems which are summarised in Annex D. The Review will not, however,
make recommendations on specific tax regimes and rates which are a matter for the
governments concerned.
2.30 The Review should also, to the extent possible, like to clarify the importance of existing tax
regimes as a factor in attracting and retaining financial services business and in supporting the
current economic models of the financial centres.
Consultation
The Review would welcome comments from interested parties on the following questions:
• to what extent are the economic models in the financial centres covered by this
Review reliant on being low tax jurisdictions?; and
• how can the financial centres ensure that their tax models remain sustainable in
the light of changing international standards and attitudes on tax evasion and
avoidance?
Progress report of the independent Review of British offshore financial centres 15
A Terms of reference
A.1 The UK Government’s decision to commission an independent review of British offshore
financial centres; their role in the global economy; and their long-term business strategies was
announced in the 2008 Pre-Budget Report.
Terms of reference
A.2 HM Treasury published the terms of reference for the independent review on 2 December
2008. These are set out below:
Purpose
A.3 The Chancellor of the Exchequer has asked Michael Foot to conduct an independent review
of the long-term opportunities and challenges facing the British Crown Dependencies and
Overseas Territories as financial centres, which have been brought into focus by recent financial
and economic events.
Scope
A.4 The review will work first with Crown Dependencies then Overseas Territories with
significant financial centres to identify opportunities and current and future risks (and mitigation
strategies) to their long-term financial services sector, including:
• financial supervision and transparency;
• taxation, in relation to financial stability, sustainability and future competitiveness;
• financial crisis management and resolution arrangement; and
• international co-operation.
A.5 The review will take account of Crown Dependencies’ and Overseas Territories’ respective
constitutional relationships with the UK. Changes to the UK’s constitutional relationship with
Crown Dependencies and Overseas Territories are out of scope for the review.
Timing
A.6 The Review will report to the Chancellor of the Exchequer, copied to the Lord Chancellor,
Foreign Secretary, and the Governments of the UK’s Crown Dependencies and Overseas
Territories; and will produce interim conclusions for Budget 2009; with fuller conclusions later
in the year.
Financial centres covered
A.7 Only those Crown Dependencies and Overseas Territories with significant financial centres
are included within the scope of the review. These are:
16 Progress report of the independent Review of British offshore financial centres
Crown Dependencies
• Guernsey;
• Jersey; and
• Isle of Man.
Overseas Territories
• Anguilla;
• Bermuda;
• British Virgin Islands;
• Cayman Islands;
• Gibraltar; and
• Turks and Caicos Islands.
Progress report of the independent Review of BritiResponding to regulatory challengesesponding to regulatory TaxationTaking forward the ReviewConsultationProgress report of the independent Review of British offshore financial centres 9Mutual dependenceOpportunities and risksConsultationFinancial supervision and transparencyCrisis management and resolution arrangementsConsultationTaxationProgress report of the independent RevProgress report of the independent Review of British offshore financial centres 13Progress report of the independent Review of British offshore financial centres 15Terms of referenceScopeTimingFinancial centres coveredCrown DependenciesProgress report of the insh offshore financial centres 17
B Economic contribution of the financial sector by jurisdiction
B.1 The table below sets out the direct contribution of financial services to Gross Domestic
Product (GDP) and employment for each of the jurisdictions.
B.2 The majority of GDP and employment for most of the jurisdictions arises from tourism and
financial services. The public sector is also a significant employer.
B.3 The sources utilised are official local government statistics for 2007, unless stated otherwise.
GDP figures not measured in sterling have been converted using the average rate for the year of
measurement. It should be noted that the categorisation of financial services for GDP and
employment is not consistent between the jurisdictions.
Jurisdiction GDP Financial services GDP
(% of total)
Financial Services employment
(% of total)
Anguilla1 £104m £12m (12%) 250 (4%)
Bermuda2 £2,925m £1,207m3 (41%) 7,600 (19%)
British Virgin Islands4 £571m £206m5 (36%) 2,1006 (13%)
Cayman Islands7 £1,283m £465m (36%) 7,500 (21%)
Gibraltar8 £740m £145m (20%) 2,400 (12%)
Guernsey9 £1,666m £528m (32%) 7,500 (24%)
Jersey10 £4,089m £2,177m (53%) 13,300 (23%)
Isle of Man11 £1,817m £721m (40%) 8,000 (14%)
Turks & Caicos Islands12 £414m £44m (11%) 500 (3%)
1 Source: National Accounts Statistics Report 200, 2001 Employment Census. Average exchange rate (2007): £1:EC$5.450.
2 Source: 2008 Economic Report, Facts & Figures 2008. Average exchange rate (2007): £1:US$2.002.
3 Includes ‘International business’ and ‘financial intermediation’ sectors.
4 Source: Government Budget 2008, www.dpu.gov.vg. Average exchange rate (2007): £1:US$2.002.
5 Includes ‘Financial services’ and ‘Real estate, renting & business services’.
6 2005 figures, includes ‘Financial services’ and ‘Real estate, renting & business services’.
7 Source: Economics & Statistics office, Oxford Economics Analysis. Average exchange rate (2007): £1:CI$1.668.
8 Source: Chief Ministers Budget Speech June 2008.
9 Source: Guernsey Facts & Figures 2008.
10 Source: Jersey Economic Digest 2008. Figures are Gross Value Added (not GDP).
11 Source: 2008 Digest of Economic & Social Statistics, Government statistics.
12 Source: Department of Economic Planning & Statistics.
Progress report of the independent Review of British offshore financial centres 19
C OECD progress report
C.1 On 2 April 2009 the OECD published a list of jurisdictions assessed by the Global Forum
against the international standard for exchange of information. This is reproduced below.
C.2 The OECD announced on 7 April 2009 that Costa Rica, Malaysia, the Philippines and
Uruguay had committed to the international standard.
Jurisdictions that have substantially implemented the internationally agreed tax standard1
Argentina
Australia
Barbados
Canada
China2
Cyprus
Czech Republic
Denmark
Finland
France
Germany
Greece
Guernsey
Hungary
Iceland
Ireland
Isle of Man
Italy
Japan
Jersey
Korea
Malta
Mauritius
Mexico
Netherlands
New Zealand
Norway
Poland
Portugal
Russian Federation
Seychelles
Slovak Republic
South Africa
Spain
Sweden
Turkey
United Arab Emirates
United Kingdom
United States
US Virgin Islands
Jurisdictions that have committed to the internationally agreed tax standard, but have not yet substantially implemented Jurisdiction Year of Commitment Number of Agreements Jurisdiction Year of Commitment Number of Agreements Tax Havens3
Andorra
Anguilla
Antigua and Barbuda
Aruba
Bahamas
Bahrain
Belize
Bermuda
British Virgin Islands
Cayman Islands4
Cook Islands
Dominica Gibraltar
Grenada
Liberia
Liechtenstein
2009
2002
2002
2002
2002
2001
2002
2000
2002
2000
2002
2002
2002
2002
2007
2009
(0)
(0)
(7)
(4)
(1)
(6)
(0)
(3)
(3)
(8)
(0)
(1)
(1)
(1)
(0)
(1)
Marshall Islands
Monaco
Montserrat
Nauru
Neth. Antilles
Niue
Panama
St Kitts and Nevis
St Lucia
St Vincent & Grenadines
Samoa
San Marino
Turks and Caicos Islands
Vanuatu
2007
2009
2002
2003
2000
2002
2002
2002
2002
2002
2002
2000
2002
2003
(1)
(1)
(0)
(0)
(7)
(0)
(0)
(0)
(0)
(0)
(0)
(0)
(0)
(0)
Other Financial Centres
Austria5
Belgium5
Brunei
Chile
2009
2009
2009
2009
(0)
(1)
(5)
(0)
Guatemala
Luxembourg5
Singapore
Switzerland5
2009
2009
2009
2009
(0)
(0)
(0)
(0)
1 The internationally agreed tax standard, which was developed by the OECD in co-operation with non-OECD countries and which was endorsed by G20 Finance Ministers at their Berlin Meeting in 2004 and by the UN Committee of Experts on International Cooperation in Tax Matters at its October 2008 Meeting, requires exchange of information on request in all tax matters for the administration and enforcement of domestic tax law without regard to a domestic tax interest requirement or bank secrecy for tax purposes. It also provides for extensive safeguards to protect the confidentiality of the information exchanged.
2 Excluding the Special Administrative Regions, which have committed to implement the internationally agreed tax standard.
3 These jurisdictions were identified in 2000 as meeting the tax haven criteria as described in the 1998 OECD report.
4 The Cayman Islands has enacted legislation that allows it to exchange information unilaterally and has identified 12 countries with which it is prepared to do so. This legislation is being reviewed by the OECD.
5 Austria, Belgium, Luxembourg and Switzerland withdrew their reservations to Article 26 of the OECD Model Tax Convention. Belgium has already written to 48 countries to propose the conclusion of protocols to update Article 26 of their existing treaties. Austria, Luxembourg and Switzerland announced that they have started to write to their treaty partners to indicate that they are now willing to enter into renegotiations of their treaties to include the new Article 26.
Jurisdictions that have not committed to the internationally agreed tax standard
Jurisdiction Number of Agreements Jurisdiction Number of Agreements
Costa Rica
Malaysia (Labuan)
(0)
(0)
Philippines
Uruguay
(0)
(0)
Progress report of the independent Review of British offshore financial centres 21
D Summary of taxation systems of financial
centres D.1 The following table provides a summary of the main taxes and fees in each financial centre, based on information published by the local governments. It is not intended to provide an exhaustive description of each tax system.
Anguilla
Corporate Income Tax
Personal Income Tax
VAT/Sales Tax
Capital Gains Tax
No taxes on income, dividends, royalties, profits, capital gains or wealth. No sales or value-added taxes.
Social Security Contributions Social Security contribution rate is 10% (5% employer, 5% employee).
Property Tax/Stamp Duties Transfer of real estate attracts a stamp duty of 5%. An additional
12.5% is imposed on real estate transferred to a foreigner. Property tax applied on the assessed value of buildings at a rate of 0.075%. Import Duties Customs duties range from 0% to 25% on imported goods.
Foodstuff is usually 5% to 10%, building materials 20%, and electronic, electrical, vehicles, etc. 25%. Other fees and charges Employers must pay an annual work permit fee for each non-
Anguillian person working. The annual fee varies from US$300 for unskilled workers to US$5,580 for self-employed professional.
Bermuda
Corporate Income Tax
Personal Income Tax
VAT/Sales Tax
Capital Gains Tax
No taxes on income, dividends, royalties, profits, capital gains or wealth. No sales or value-added taxes.
Payroll Taxes Payroll tax is levied at variable rates depending on type and size of company. Rates vary from 4.75% (mainly government institutions) to 14% (taxpayers with annual payroll greater than BM$1,000,000 and exempt undertakings).
Social Security Contributions Social Security Contributions are charged at a flat fee of BM$60.80
per week, half payable by the employer and employee.
Property Tax/Stamp Duties Stamp duty on property transactions are charged at rates of between
2% and 6%. Property tax is levied on a progressive scale (there are six annual rental value bands). The tax rate ranges from 0.6% to 18.23%. Commercial properties are taxed at a single rate of 4.4%.
Import Duties Customs duties are imposed on almost all imports. Import duties are typically charged at 22.25% although lower rates (mainly on food stuffs) and higher rates are also applicable on certain goods (e.g.
electrical goods).
22 Progress report of the independent Review of British offshore financial centres
British Virgin Islands
Corporate Income Tax
Personal Income Tax
VAT/Sales Tax
Capital Gains Tax
No taxes on income, dividends, royalties, profits, capital gains or wealth. No sales or value-added taxes.
Payroll Taxes Payroll tax is levied at a rate of 14%; 8% paid by the employee and the remainder by the employee. The contribution for small business (employing less than seven people) is 2%.
Social Security Contributions Social Security contribution rate is 8.5% (4.5% employer
and 4% employee).
Property Tax/Stamp Duties Stamp duty on property transactions is charged at 4% of the sales
price (12% if sale is to non-residents). A land tax is payable annually as is a house tax imposed at a flat rate of 1.5% of the assessed annual rental value (ARV).
Import Duties Customs Duties are imposed on most imports, at rates between 5% and 20%.
Other fees and charges All Business Companies are statutorily exempt from BVI taxes. Such
companies must pay an annual licence fee. Annual licence fees for companies are around US$350 / US$1,100 depending on size.
General banking licence fees are US$20,000.
Cayman Islands
Corporate Income Tax
Personal Income Tax
VAT/Sales Tax
Capital Gains Tax
No taxes on income, dividends, royalties, profits, capital gains or wealth. No sales or value-added taxes.
Social Security Contributions A national health insurance system is mandatory for all private
sector employees. Employers must also have a pension plan for their employees (foreign workers employed for less than 9 months are exempt).
Property Tax/Stamp Duties Stamp duty on transfers of real estate is charged at rates up to 7.5%.
Mortgages also attract stamp duty (of 1.5%).
Import Duties Import duties are typically charged at 0%, 15% and 20%. Higher rates apply for certain products (e.g. motor vehicles 27.5%-40%).
Other fees and charges1 Unless exempted, every person or company carrying out a business
must have an annual licence. Fees depend on type and location of business, as well as number of employees. Licence renewal fees for insurance companies range from $US 9,146-US$48,780 and US$45,121-US$487,480 for banking corporations.
1 Correct as of 2006
Progress report of the independent Review of British offshore financial centres 23
Gibraltar
Corporate Income Tax 27% (20% for SMEs with profits not in excess of £ 35,000).
Personal Income Tax2 Progressive, top rate 40%.
VAT/Sales Tax None.
Capital Gains Tax Gains in hands of individuals not subject to capital gains and not
included in ordinary taxable income. Gains on disposal of business assets liable to corporation tax at the standard rate.
Social Security Contributions Contributions for employees are levied at 10% of gross
earnings (20% for self employed). Employer’s contribution is 20% of gross earnings.
Property Tax/Stamp Duties Stamp duty on transfers of real estate is charged at rates up
to 2.5%. Mortgages also attract stamp duty (0.13%, 0.2% depending on amount).
Import Duties Most goods subject to import duty at rate of 12%. Motor vehicles suffer rates of 25%-30% according to engine capacity.
Other fees and charges Businesses established in Gibraltar require a licence. Fees are
£40 with a renewal fee of £25.
Guernsey
Corporate Income Tax 0%,10% – regulated financial services, 20% – income from Guernsey
property, 20% – regulated utilities.
Personal Income Tax 20% flat rate.
VAT/Sales Tax None.
Capital Gains Tax None.
Social Security Contributions Employees: 6% on earnings between GB£485.33 and GB£5,759 per
month. Employers: 6.5% on earnings up to GB£5,408 per month (deductible from profits as business expense).
Property Tax/Stamp Duties Stamp duty levied on the purchase of real estate and on certain
documents. Rates range from 0% to 3%. Tax on Real Property (TRP) is calculated using, among other things, property unit values. Rates,
payable by occupier (owner or a tenant) to the parish council in which property is situated.
Import Duties Guernsey applies the common external tariff of the EU; as part of the
single market, there are no tariff barriers between Guernsey and the rest of the EU.
Other fees and charges Annual validation fee. Amount payable depends on activities of company. Fees range from GB£250 to GB£1,000.
2 Gibraltar: Individuals may choose to be taxed using either the Allowance Based System (ABS) or the Gross Income Based (GIB) System. Under the ABS the rates are: 17% (up to £4,000); 30% (4,001 to £16,000); 40% over £16,000. Under the GIB, tax is charged on gross income (without allowances and deductions), at the following rates: 20% (up to £25,000); 30% (25,001 to £100,000); 38% over £100,000.
24 Progress report of the independent Review of British offshore financial centres
Isle of Man
Corporate Income Tax 0%, 10% – income from banking business, 10% – property income.
Personal Income Tax3 Progressive. 10% – standard rate (up to £10,500), 18% – top rate
(over £10,500) [see notes].
VAT/Sales Tax 17.5% (standard rate) 0%, 5% (reduced rates).
Capital Gains Tax None.
Social Security Contributions Employee (class 1) contributions (for 2009-10) are nil on first
GB£110 of weekly earnings and 10% on income up to upper earnings limit of GB£730 per week. Employer’s contribution rate is 12.8% on earnings above GB£110 per week.
Property Tax/Stamp Duties No stamp duties. Rates are levied on the ownership or occupation of real estate on the island and are based on the annual rental value of the property varying according to the area in which the property is situated.
Import Duties VAT and customs and excise duties are collected together with those
of the UK and the proceeds then shared between the two. The Isle of Man applies the common external tariff of the EU.
Other fees and charges Annual Corporate Charge of £250 applies to all resident companies.
Jersey
Corporate Income Tax 0%, 10% – income from banking business, 10% – companies
regulated by the Financial Services Commission, 20% – income from Jersey property.
Personal Income Tax 20% flat rate.
VAT/Sales Tax4 3% (standard rate), 0% (reduced rate).
Capital Gains Tax None.
Social Security Contributions Employee: 6%, based on a maximum monthly earning of GB£3,540. Employer: 6.5% of remuneration, up to GB£3,540 per employee per month (52% deductible from profits as business expense).
Property Tax/Stamp Duties Stamp duty levied on the purchase of Jersey real estate and
on certain documents. Rates of duty range from 0% to 3%. Rates
vary according to area (deductible from trading profits and rental income).
Import Duties Jersey applies the common external tariff of the EU;
as part of the single market, there are no tariff barriers between Jersey and the rest of the EU.
3 The Isle of Man applies a tax cap. The maximum liability for any one individual is £100,000 of income tax a year. The cap applies even for non-Manx source income.
4 Jersey’s Goods Service Tax (GST) has been fixed at 3% starting May 1 2008. Regulations have been included that place the finance industry and its clients beyond the scope of GST on payment of annual fees.
Progress report of the independent Review of British offshore financial centres 25
Turks and Caicos Islands
Corporate Income Tax
Personal Income Tax
VAT/Sales Tax
Capital Gains Tax
No taxes on income, dividends, royalties, profits, capital gains or wealth. No sales or value-added taxes.
Social Security Contributions Social Security contribution rate is 8% for the private sector
(4.6% employer and 3.4% employee).
Property Tax/Stamp Duties Stamp duty is liable on transfers of real estate and some official
documents. The applicable stamp duty rate on property depends upon the value of the property transferred and the island where it is located (ranges from 0% to 9.75%).
Import Duties Import duties are imposed on most products: Processed foods 25%;
Certain building materials 10.25%; Motor vehicles 5%-100% depending on the description and size (generally 25% to 45%).
Most other goods 30%.
Other fees and charges Banking licence fees range from US$12,500 (Overseas Banking licence only) to US$17,500 (National Banking licence only). Annual renewal fees are US$12,500 (Overseas Banking licence only) to US$10,000 (National Banking licence only). Joint licences carry licence fees of US$22,300 and annual renewal fee of US$19,500.
